ATK (Alliant Techsystems,
NYSE: ATK), the world’s leading supplier of solid propulsion systems and the
nation’s largest manufacturer of ammunition, today reported earnings per share
from continuing operations for the second quarter of fiscal year 2003 of
73 cents versus 57 cents a year ago. (All per-share figures reflect a 3-for-2
common stock split effective June 10, 2002.)
Sales for the quarter, which ended Sept. 29, rose 20 percent to
$513 million from $428 million, reflecting new revenues from the civil
ammunition and related products business acquired in December 2001 and ATK Gun
Systems, which was acquired in May 2002. Higher sales of munitions and solid
propulsion systems for strategic missiles also contributed to the growth.
“Our solid second-quarter results keep us on track to deliver another year
of outstanding performance in FY03,” said Paul David Miller (PDM), chairman
and chief executive officer. “Looking ahead to the second half, we expect
cash flow to remain strong and the pace of internal sales growth to pick up,
giving us a revenue gain of approximately six percent for the year. Much of
that organic growth will come from programs within our Precision Systems
Group, including a next-generation assault weapon, a new tactical munition
system, missile components, and next-generation tank projectile programs.
Sales growth also will benefit from the recently announced acquisition of the
assets of Science and Applied Technology, Inc. (SAT, Inc.), a leading
developer of advanced precision missile guidance technology.”
As a result of continued strength in military and commercial ammunition
programs in the first half of the year and the addition of revenues from the
acquisition of SAT, Inc., the company now expects FY03 sales to exceed
$2.1 billion. Earnings per share from continuing operations for the year are
now projected to be at the high end of the previously established range of
$3.22 to $3.24. The forecast for free cash flow remains in excess of
$100 million.
For the third quarter of FY03, the company continues to expect EPS from
continuing operations to be between 83 cents and 85 cents.
For fiscal year 2004, ATK continues to expect earnings per share from
continuing operations of approximately $3.60. Sales for the year are
projected to grow by approximately six percent.
In previous earnings guidance for FY04, pension plan assumptions included
a long-term rate of return on pension assets of 9.5 percent and a discount
rate of 7.25 percent. ATK currently expects to adjust the long-term rate of
return assumption down to 9.0 percent for FY04. The effect of this adjustment
will reduce pension income in FY04 from previous guidance by approximately
$8 million or 12 cents per share. The company currently expects to be able to
offset this expected reduction in pension income through increased sales and
internal cost-reduction initiatives.
Other key second-quarter performance factors:
* Earnings from continuing operations before interest and income taxes (EBIT) were $64 million, compared with $54 million a year ago.
* The EBIT margin rate (EBIT as a percentage of sales) was 12.5 percent. The company continues to expect the full-year EBIT margin rate to be 13 plus percent.
* Net earnings per share were 73 cents versus 56 cents a year ago.
Earnings before interest, taxes, depreciation, and amortization (EBITDA)
for the first half of FY03 were $166 million, compared with $141 million in
the same period a year ago.
Free cash flow (cash from operating activities less capital expenditures)
generated during the first half was $76 million, compared with $74 million a
year ago.
First-half earnings per share from continuing operations increased
30 percent to $1.46 from $1.12 a year ago, while sales rose 26 percent to
$1.0 billion from $823 million last year. Earnings before interest and income
taxes were $130.7 million during the period, up 27 percent from $103.1 million
a year ago.
Net earnings per share for the first half were $1.35 versus 66 cents last
year. The current year’s results include a one-time loss of 21 cents per
share resulting from a non-cash charge for the early extinguishment of debt,
and a gain of 10 cents per share reflecting the cumulative effect of the
adoption on April 1, 2002, of the Statement of Financial Accounting Standards
(SFAS) No. 142, “Goodwill and Other Intangible Assets,” which, among other
things, eliminates the amortization of goodwill and certain intangibles.
Goodwill amortization was $6.8 million or 20 cents per share in the first half
of the previous fiscal year.
Operations Review
The Aerospace Group posted second-quarter sales of $212 million versus
$222 million last year. The variance reflects planned lower volume from the
Titan IV B rocket motor program as it nears completion, which was partially
offset by higher sales of Minuteman III ICBM propulsion systems. First-half
sales, which rose 10 percent to $463 million from $420 million a year ago,
benefited from a full six months of revenues from ATK Thiokol Propulsion and
higher sales of propulsion systems for the Minuteman III strategic missile.
The Precision Systems Group reported second-quarter sales of $151 million,
up 19 percent over $128 million a year ago. New revenues from ATK Gun
Systems, which was acquired in May 2002, and higher sales of certain guided
munition and missile components contributed to the growth. Sales for the
first half rose 7 percent to $272 million from $254 million on new revenues
from ATK Gun Systems.
Ammunition Group sales in the second quarter rose to $154 million from
$85 million a year ago, reflecting the addition of new revenues from the civil
ammunition and related products business acquired in December 2001. Year-to-
date sales increased to $311 million from $164 million primarily on revenues
from commercial ammunition programs as well as higher volume from military
small-caliber ammunition production.
Orders received during the second quarter rose to $303 million from
$179 million a year ago, driven primarily by commercial ammunition orders.
Contracted backlog at the end of the quarter was $3.3 billion. Total backlog,
which includes contracts awarded but for which the company is not yet
authorized to incur costs, plus the value of unexercised options, was
approximately $5.5 billion.
Recent business highlights include:
* A contract from the U.S. Army to produce the Multi-Option Fuze for Artillery, which could be worth $170 million in sales over the next four years if all options are exercised.
* A $27 million contract to jointly develop a new tactical munition system for the Army.
* A $27 million contract to assist the government of Egypt in developing a capability to produce 120mm tank training ammunition.
* A $14 million contract to produce composite wing skins for the F-35 Joint Strike Fighter.
* A $13 million contract to produce composite parts for the Global Hawk unmanned reconnaissance system.
* A $5 million contract to develop the Army’s XM8 Lightweight Assault Rifle.
* A $4 million contract to supply medium-caliber ammunition to the government of New Zealand for use by military light armored vehicles.
* Successful launches of the Space Shuttle Atlantis, the Atlas IIAS launch vehicle, and Japan’s H-IIA rocket — all powered by ATK Thiokol Propulsion solid propulsion motors.
* A successful inaugural launch of the new Atlas V 400 rocket, which includes a major composite structure produced by ATK Composites.
Comments on Pension Income
With much discussion surrounding pension income, ATK believes it is
important to address its accounting for pension costs under SFAS 87. The
company recognizes fully the sensitivity of such forecasts to changes in
various key economic assumptions. The pension plan assumptions in the current
year (fiscal year 2003) guidance include an expected long-term rate of return
on plan assets of 9.5 percent and a discount rate of 7.25 percent. Based on
the overall market’s performance and preliminary analysis, ATK currently
expects that it will lower the long-term rate of return on plan assets that
will be used for determining fiscal year 2004 pension expense from 9.5 percent
to approximately 9.0 percent. This reduction would have the effect of
reducing pension income in fiscal year 2004 to approximately $2 million, a
reduction of approximately $8 million from the previously discussed
expectation for pension income of $10 million. As discussed above, the
company currently expects to be able to offset this expected reduction in
pension income, and is therefore maintaining its guidance for fiscal year 2004
earnings per share from continuing operations of $3.60.
The long-term rate of return assumption, the discount rate assumption, and
the actual return on plan assets that will be used for calculating the FY04
SFAS 87 pension expense will be finalized at calendar year-end, consistent
with the company’s pension plan measurement date.
The following is provided to assist with additional analysis of the
potential incremental impact (beyond what is discussed above) to the company’s
existing guidance for FY04 SFAS 87 pension costs.
* Based on the current corporate bond market yields, an adjustment in the
discount rate does not look necessary at this time. However, if such a
change were ultimately determined to be necessary, lowering the
discount rate by 25 basis points would further increase 2004 SFAS 87
pension expense by approximately $4 million.
* The actual year-to-date return on plan assets through mid-October was
negative 10 percent. Each one-percent change in the actual return on
plan assets, compared to the FY03 assumed rate of return of negative
five percent, would incrementally change FY04 SFAS 87 pension expenses
by approximately $0.4 million.
SFAS 87 determines pension income or expense for GAAP financial reporting
purposes but not the funding requirements for the pension plans, which are
subject to Cost Accounting Standards as well as Internal Revenue Service (IRS)
minimum funding calculations. Additionally, since pension funding is an
allowable cost under Federal Acquisition Regulations, much of the company’s
pension funding is recoverable on government contracts. Due to its
recoverability, the impact of increased funding in the current year is not
expected to materially affect cash flow in FY03 and has been reflected in the
company’s free cash flow guidance. Looking out over the next four fiscal
years, the company estimates that its average annual pension contributions
(net of contract recoveries) will be less than $15 million per year.
The balance sheet is currently expected to be adjusted at year-end in
accordance with SFAS 87 to record a minimum pension liability. This
adjustment would be a non-cash reduction of equity, would not impact earnings
or bank covenants, and would be reversible should market performance improve
and interest rates increase. Assuming there is no significant change in
interest rates or equity market performance for the remainder of the year, we
anticipate that the after-tax adjustment to equity would be in the range of
$60 million to $90 million.
ATK is a $2.1 billion aerospace and defense company with leading positions
in propulsion, composite structures, munitions, and precision capabilities.
The company, which is headquartered in Edina, Minn., employs approximately
11,500 people and has three business groups: Aerospace, Precision Systems,
and Ammunition. ATK news and information can be found on the Internet at
www.atk.com .
The forecasts, projections, expectations, and opportunities for
anticipated sales, earnings per share, pension costs and assumptions, cash
flow, and EBIT margins included in this news release are “forward-looking
statements” as defined in the Private Securities Litigation Reform Act of
1995. Such forward-looking statements involve risks and uncertainties that
could cause actual results to differ materially from anticipated results,
including changes in governmental spending and budgetary policies, economic
conditions, equity market returns, the company’s competitive environment, the
timing of awards and contracts, the outcome of contingencies, including
litigation and environmental remediation, program performance, and sales
projections, in addition to other factors identified in ATK’s filings with the
Securities and Exchange Commission.
Webcast Information: ATK will webcast a conference call with investors at
10:00 a.m. Eastern Standard Time today, during which company leadership will
discuss FY03 second-quarter results and may comment on the outlook for future
periods. The live audio web cast will be available on the investor relations
page of ATK’s web site at www.atk.com . Information about downloading free
Windows Media Player software, which is required to access the webcast, is
available on the website. For those who cannot participate in the live
webcast, a telephone recording of the conference call will be available for
one month after the call. The telephone number is 719-457-0820, and the
confirmation code is 556161.
ALLIANT TECHSYSTEMS INC.
CONSOLIDATED INCOME STATEMENTS
(In thousands except QUARTERS ENDED SIX MONTHS ENDED
per share data) September 29 September 30 September 29 September 30
2002 2001 2002 2001
Sales $513,145 $427,567 $1,033,035 $822,783
Cost of sales 399,494 340,251 807,127 655,652
Gross profit 113,651 87,316 225,908 167,131
Operating expenses:
Research and
development 5,656 5,337 10,631 9,353
Selling 15,717 8,363 30,955 17,285
General and
administrative 28,171 19,303 53,623 37,394
Total operating
expenses 49,544 33,003 95,209 64,032
Income from continuing
operations before
interest and income
taxes 64,107 54,313 130,699 103,099
Interest expense (16,707) (22,707) (35,016) (42,381)
Interest income 169 224 429 540
Income from continuing
operations before
income taxes 47,569 31,830 96,112 61,258
Income tax provision 19,028 12,095 38,445 23,278
Minority interest
expense, net of
income taxes --- 417 --- 672
Income from continuing
operations 28,541 19,318 57,667 37,308
Loss on disposal of
discontinued operations,
net of income taxes --- --- --- (4,650)
Income before
extraordinary loss
and cumulative effect
of change in accounting
principle 28,541 19,318 57,667 32,658
Extraordinary loss on
early extinguishment
of debt, net of income
taxes (67) (409) (8,117) (10,609)
Cumulative effect of
change in accounting
principle, net of
income taxes --- --- 3,767 ---
Net income $28,474 $18,909 $53,317 $22,049
Basic earnings (loss)
per common share:
Income from continuing
operations $0.75 $0.60 $1.51 $1.17
Discontinued
operations --- --- --- (0.15)
Extraordinary loss --- (0.01) (0.21) (0.33)
Cumulative effect of
change in accounting
principle --- --- 0.10 ---
Net income $0.75 $0.59 $1.40 $.69
Diluted earnings (loss)
per common share:
Income from continuing
operations $0.73 $0.57 $1.46 $1.12
Discontinued operations --- --- --- (0.14)
Extraordinary loss --- (0.01) (0.21) (0.32)
Cumulative effect of
change in accounting
principle --- --- 0.10 ---
Net income $0.73 $0.56 $1.35 $0.66
ALLIANT TECHSYSTEMS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share data) September 29, 2002 March 31, 2002
Assets
Current assets:
Cash and cash equivalents $70,357 $8,513
Net receivables 399,116 431,482
Net inventory 163,817 125,308
Deferred income tax asset 61,729 62,299
Other current assets 35,873 42,467
Total current assets 730,892 670,069
Net property, plant, and equipment 451,839 464,830
Goodwill 795,863 748,050
Prepaid and intangible pension assets 261,319 234,218
Deferred charges and other non-
current assets 85,542 92,784
Total assets $2,325,455 $2,209,951
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $4,983 $4,805
Accounts payable 79,088 83,404
Contract advances and allowances 78,421 61,257
Accrued compensation 87,038 99,575
Accrued income taxes 20,119 4,408
Other accrued liabilities 128,470 121,558
Total current liabilities 398,119 375,007
Long-term debt 887,606 867,638
Deferred income tax liability 54,076 65,091
Post-retirement and post-employment
benefits liability 231,999 235,639
Other long-term liabilities 145,086 109,775
Total liabilities 1,716,886 1,653,150
Contingencies
Common stock - $.01 par value
Authorized - 90,000,000 shares
Issued and outstanding 38,172,446
shares at September 29, 2002 and
25,229,812 at March 31, 2002 416 289
Additional paid-in-capital 472,154 478,489
Retained earnings 387,827 334,507
Unearned compensation (3,315) (4,864)
Accumulated other comprehensive income (25,572) (14,122)
Common stock in treasury, at cost
3,384,652 shares held at September 29,
2002 and 3,625,702 at March 31, 2002 (222,941) (237,498)
Total stockholders' equity 608,569 556,801
Total liabilities and
stockholders' equity $2,325,455 $2,209,951
ALLIANT TECHSYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) SIX MONTHS ENDED
September 29, September 30,
2002 2001
Operating activities
Net income $53,317 $22,049
Adjustments to net income to arrive at cash
provided by operating activities:
Depreciation 32,116 25,892
Amortization of intangible assets and
unearned compensation 3,044 11,538
Deferred income tax (6,819) 303
Loss (gain) on disposal of property 216 (39)
Minority interest expense, net of income taxes --- 672
Loss on disposal of discontinued operations,
net of income taxes --- 4,650
Extraordinary loss on early extinguishment
of debt, net of income taxes 8,117 10,609
Cumulative effect of change in accounting
principle, net of income taxes (3,767) ---
Changes in assets and liabilities:
Net receivables 21,375 19,255
Net inventory (27,412) (6,689)
Accounts payable (3,854) (16,295)
Contract advances and allowances 7,535 195
Accrued compensation (12,538) 560
Accrued income taxes 15,711 24,356
Accrued environmental 1,458 (1,060)
Pension and post-retirement benefits (33,459) (19,125)
Other assets and liabilities 38,964 12,799
Cash provided by operating activities 94,004 89,670
Investing activities
Capital expenditures (17,734) (15,809)
Acquisition of businesses (44,526) (704,000)
Proceeds from sale of a portion of a subsidiary --- 5,455
Proceeds from sale of property, plant, and
equipment 4,009 262
Cash used for investing activities (58,251) (714,092)
Financing activities
Payments made on bank debt (32,633) (368,135)
Payments made to extinguish debt (472,220) (276,800)
Proceeds from issuance of long-term debt 525,000 1,325,000
Payments made for debt issue costs (2,053) (43,768)
Net purchase of treasury shares (1,427) (852)
Proceeds from employee stock compensation plans 9,424 10,067
Cash provided by financing activities 26,091 645,512
Increase in cash and cash equivalents 61,844 21,090
Cash and cash equivalents - beginning of period 8,513 27,163
Cash and cash equivalents - end of period $70,357 $48,253
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